Overcoming the Overdraft

Overcoming the Overdraft

One of the most frustrating things you can experience is a paycheck that doesn’t go far enough because of past overdraft fees. It creates a perpetual cycle that leaves young people in the red, living paycheck to paycheck. In 2012, banks collected over $32 billion in overdraft fees, so you’re certainly not alone if you find yourself in this particular situation. Sadly, 25% of those over drafting know that they’re going to do it—it isn’t a lapse, but an inability to get out of the cycle.

Most of us experience this at some point—Jason Hartman wasn’t always wealth creating machine—but with careful management and a little bit of know how, you’re capable of finding your way out. First, stop viewing overdraft protection as a kind of loan. Use overdraft protection if you must, but don’t ever rely on it. Then, create a budget and stick to it. If you overdraft, you’ve probably been spending money that isn’t there and have therefore lost track of your finances. Sit down and create a budget that cuts luxury items until you’re out of the hole.

Consider asking your bank for a waiver. If you’ve been a loyal customer and have a good reason for overdrafting, they’ll be more likely to work with you. If you don’t ask, the answer will certainly be no—so its worth a shot. Next, sign up for banking alerts to inform you over text or email when you’re getting low on funds. The simple reminder may encourage you to make changes in small ways and help get you back on your feet.

You may want to skip the overdraft protection, too. If your card is declined, you’ll be more aware of what you’re doing. The potential embarrassment may also help you be more accountable for your finances. Instead of overdraft protection, you may connect your main account to a credit card or savings account to protect you. Be careful here too—credit card interest can be detrimental, especially to someone trying to recover their finances.

Finally, think outside the box. It might be worth it to take out a short-term loan from friends or family to get you back on your feet. You may be able to pick up a temporary second job or sell some things. Commit yourself to becoming financially literate to prevent future occurrences and square up your finances now—it will be a decision you won’t regret!(http://www.flickr.com/photos/scarequotes/392744197/)